Milk price initiative explored.

The architects of the Australian Milk Price Initiative say their proposal will be a win-win for farmers and processors, and a senior banker says it could transform the way financiers view the industry.

Funding the development of the AMPI to the tune of $560,000 was one of the biggest election promises made to the dairy industry by the Coalition.

"A re-elected Morrison Government will, through Australian Dairy Farmers, engage the Australian Milk Price Initiative to design new milk pricing and marketing concepts for the dairy sector," the announcement read. 

"This will give dairy farmers better leverage, more transparency from the supply chain and more choices on how and when they price their milk."

The commitment matched almost perfectly one of the top priorities that has since emerged from Australian Dairy Plan workshops, a milk market. 

"New measures to increase transparency and help manage market risk including the establishment of a functioning milk price market and new risk measures backed by government legislation," the resolution said.

Asked to describe the initiative, AMPI organiser Scott Briggs said it would allow farmers to be more active managers of their milk supply.

"AMPI is a proposal to allow farmers to sell their own milk on the milk swap market," Mr Briggs said. 

"Basically, they will be able to sell milk to third parties, not just the processor that normally picks up their milk.

"That milk gets delivered via a milk swap.

"That's a fairly non-transparent part of the milk market for most farmers. 

"What we're suggesting is that we actually create an open market for the trade of milk by farmers to processors. 

"That gives the farmer has a hell of a lot more choice when it comes to who they're selling to, when they're selling, what price the farmer is receiving and the contract terms they're getting.

"We want to bring that part of the market up into the light and empower farmers so they have more choice in the way they sell their milk." 

The milk swaps would be a combination of virtual and physical transfers between factories rather than at the farm gate.

"If your swap means there would be some milk going from processor A to processor B, we'd actually look at netting that off against any milk that's going from processor B to processor A, to get some transport efficiencies out of it but what we've done is actually create a totally open transparent market," Mr Briggs said.

The accounting for swapped volumes and payment would be managed via an online platform that would be visible to participants.

"You actually see all of the price, all of the trade, and all of the netting down, etc, happening through one price exchange quite efficiently," he said. 

"We already see that in wool, grains and sugar."

AMPI co-organiser Garry Booth said transparent milk swaps would make the entire supply chain more efficient.

"In the case of the grain contracts on the ASX, only about 3-4 per cent ever actually goes to delivery," Mr Booth said. 

"It doesn't mean people can't make or take delivery but a transparent contract brings a dramatic increase in efficiency right across the board and solves the logistics problem." 

Even so, real trades, as distinct from hedges and other financial trades, played two vital roles, Mr Booth said.

The first was price discovery, which allowed others in the supply chain to accurately understand genuine price movements.

The other was trust in the integrity of the market mechanism itself.

Building confidence

Commonwealth Bank head of agricultural commodities trading Daniel Marsh said physical trades were vital to ensure relevance for the end user.

"People use the contracts as a procurement or commercial tool, linking that in with onward decisions," Mr Mash said.

"If there's a big dislocation between the index or the futures or the derivative price and the actual physical that they're aiming to manage risk against, it will become ineffective. 

"And ineffectiveness is a real killer for liquidity."

Mr Marsh to have confidence, the bank needed to know there was liquidity.

"It's also good to know which sectors of the market are actually engaged with, and using, the the index or benchmark," he said.

"It provides information around, clearly, the market price but also the extent to which people are potentially managing risk.

"Not only does it help with with price risk management decisions but, from a bank's point of view if they're financing or they might be lending into those markets, it also provides a way for the bank to manage and quantify its risk from a market risk and a credit risk perspective, which is really useful.

"A benchmark is really transformational in terms of how it can enable banks to look at risk differently and therefore change their appetite in terms of how much they might wish to lend to those markets."

AMPI organiser Scott Briggs said the entire supply chain would benefit from a more transparent market.

"We're not just talking about farmers here, processors can benefit from having that choice by matching up their sales with their milk buying much better than they currently do," he said.

"From a whole of industry perspective, we can actually establish risk management tools that everybody trusts, everybody sees and believes in, and therefore everybody's willing to use."

"It's important to note that we're not talking about completely removing the current industry pricing structure - that will stay the same.

"Farmers and processor will choose when, and if, they trade some milk on the open milk market.

"The actual market design and technology is there; it already exists in other the markets.

"What we as an industry need to do is get everybody in the room to discuss how to make it work for all of us."

This story first appeared on Stock & Land

ADF CEO Report and Policy Updates.

Much has been said in recent months and weeks around the Australian Dairy Plan. Following considerable preparation, ADF and the other partner organisations were delighted to see more than 1,000 people attend 25 workshops convened across Australia. I attended a number of these workshops and jointly facilitated the final three. It was a timely and important opportunity to hear directly from dairy farmers on what is important to you:

  • Recognising that the industry has changed substantially over the past twenty years;

  • Recognising that the cost of production has risen substantially coupled with the fact that retail prices have not tracked accordingly;

  • Recognising that industry is calling for transformational change that delivers a stronger voice around advocacy with structures that better reflect the needs of a vibrant and modern industry.

We have heard these messages and look forward to next steps, including the establishment of a Joint Transition Team. This group of people will be charged with developing options for improved structural arrangements and we are busy working with partners preparing next steps around the Dairy Plan. The process so far, and the outcomes and camaraderie that was built from the recent National Workshop, has further galvanised the desire from ADF to ensure we are doing everything possible to support dairy farmers.

As you may have read, ADF and 11 contributing processors have concluded their funding agreement which supported the operations of the Australian Dairy Industry Council. This was a significant decision and we look forward to continuing our current advocacy efforts without our independence being brought into question. All this being said, the future of the ADIC and a through-chain policy voice for the industry is paramount and we look forward to working with the processing sector to ensure this continues.

As is outlined through this update, ADF continues to engage with government and lead dairy farmers’ national advocacy efforts on a number of important fronts. Farm trespass, the Coalition’s dairy-specific election commitments, trade and market access, animal health and biosecurity, animal welfare and social license to operate as well as water policy are some of the many issues currently in play. It’s great to see that our initiative around milk labelling, including our online petition, is quickly gaining support and signatures.

Staff are busy preparing for several important meetings in Canberra to engage on a number of these and related pivotal dairy issues. It is pleasing to see our Federal parliamentary activity escalating on the back of a busy few months pre- and post the federal election.

Yours sincerely,

David Inall,
CEO, Australian Dairy Farmers

ADF recently hosted Shadow Trade Minister Madeleine King to talk about the risk of geographic indications in an Australia-European free trade agreement (FTA), including a dairy farmer round table in Gippsland and a visit to cheese manufacturer Floridia Cheese.

Policy Update

Commitments in the ADIC 2019 Election Policy Statement are progressing:

  1. ADF attended the 26th negotiating round of the Regional Comprehensive Economic Partnership in Melbourne. This enabled the industry to convey its support for the agreement to be made by the end of the year.

  2. Submissions to the Joint Standing Committee on Trade are currently under development for the Indonesian and Hong Kong FTAs. These are due by August 23 2019.

  3. Work has commenced on developing a business case to counter the EU’s potential arguments over Geographical Indications. This will be submitted when the consultation phase is opened in the negotiation.

  4. A Terms of Reference has been drafted for a Productivity Commission Review into the Dairy Industry’s Competitiveness. ADF has commenced consultation with the federal Minister for Trade’s office on this proposal.

  5. Discussions have commenced with the Department of Energy on implementation of the $10 million Energy Efficient Grants for dairy farms. This was a flagship initiative in the $22m Dairy Support Package. It was included in the package to implement one of the three commitments in the statement designed to reduce energy cost for the dairy industry.

  6. Contact has been made with the CSIRO’s Land and Water team to initiate discussions on a proposal to develop a water supply blueprint for the nation. The purpose of this work is to develop a strong evidence-based strategic policy for securing a long-term water supply for agriculture.

This follows on from letters being sent to all relevant ministers, shadow ministers and dairy region members of parliament providing them a copy of the statement in June 2019. A copy of the statement can be accessed here.
 
On August 1 2019, ADF made submissions to the Victorian and Australian parliaments on their inquiries into farm trespass and animal activism. Progress of the inquiries, including display of all submissions lodged, can be viewed on the Victorian and Australian parliamentary websites. A copy of the Victorian submission was also provided to the Queensland Liberal Opposition Leader’s office to help drive their Bill through the Queensland Parliament, which can be viewed here.
 
On August 1 2019, Greens Senator Janet Rice introduced a motion to disallow the Gene Technology Amendment (2019 Measures No. 1) Regulations 2019. At this stage it appears that this will be voted on in the Senate on September 17 2019. ADF has developed a draft advocacy campaign and is working with the National Farmers Federation to ensure this motion is not approved.
 
On June 28  2019 letters were sent to Ministers Colbeck and McKenzie requesting specific action to remove the term ‘milk’ from plant based alternatives and restore truth in labelling. Significant media has resulted from this action, including an article in the Australia. To add weight to the argument ADF launched an online petition for supporters to sign. Please invite your friends and family to sign via https://farmers.org.au/campaign/reclaimmilk/
 
On 26 June 2019 ADF attended the national Safemeat Partners meeting in Canberra. This is a joint meeting between Australia’s livestock industry leaders and federal and state government representatives to determine policy and regulation relating to livestock biosecurity. Key decision arising from the meeting for the dairy industry included a shift to digitalising supply chain traceability e.g. National Vendor Declarations.
 
Discussion with the Department of Agriculture has confirmed the dairy code of practice and $22 million Dairy Support Package are currently subject to post election legal, policy and budget processes. Over the coming months ADF will be convening workshops and stakeholder consultations to develop project plans for these initiatives.
 
Face to face meetings have been completed for ADF’s five Policy Advisory Groups and ADIC’s Water Taskforce in mid July 2019. ADF’s representatives on the NFF Committees have been confirmed and operationalised. Other outcomes arising from these meetings will be written up into an ‘ADF Operational Plan’ for delivery in 2019-20. A draft will be sent to members of these groups for review/approval before tabling at ADF’s National Council and Board meetings in October for their review/approval.
 
ADF’s CEO and Director Strategy and Policy presented ADF’s 2018-19 achievements and priorities are the WAFarmers 2019 Dairy Conference in Busselton WA on 4 July 2019. Elements of this presentation were delivered to the Policy Advisory Groups and will form the basis of the ADF’s 2019 Annual Report.

Dairy in the media

Dairy continues to feature prominently in the media - from ADF's campaign to reclaim the term "milk" from plant-based products to our push for tougher trespass laws, and culminating in the outcomes from the two-day Dairy Plan national workshop last week.

Some of the highlights from the past month were:

ADF calls for bigger fines and the public outing of farm trespass offenders

Australia's peak dairy farmer lobby group says Victorian laws should be bolstered to protect farmers' human rights from animal activists and give police the authority to issue on-the-spot fines of up to $12,000 for farm trespass offences.

In its submission to the state government's Inquiry into the Impact of Animal Rights Activism on Victorian Agriculture, Australian Dairy Farmers (ADF) argues animal activists are causing "undue hardship to farmers".


Read more here.

The Australian Dairy Plan workshops highlight need for change

An “overwhelming” need for a new dairy industry structure is one of the key points to have come out of the recent Australian Dairy Plan workshops.

Australian Dairy Plan chairman John Brumby told The Weekly Times from the 1000 attendees at 23 workshops, “overwhelmingly contributors identified the need for industry bodies to do things differently”.

Read more here.

Processors asked to help fund Dairy Australia

Dairy processors are being asked to step up to the plate and contribute more to Dairy Australia, which is funded by a combination of farmer levies and taxpayer funds.

Peak farmer lobby group, Australian Dairy Farmers is leading the charge.

Read more here.

Funding deal ends

A dairy lobby group will no longer receive funding from processors after a three-year agreement ended on June 30.

Australian Dairy Farmers said the agreement, which had seen 11 processors contribute to funding the Australian Dairy Industry Council, would not be renewed.

Read more here.

Farmers' war on almond, soy milk

Dairy farmers are fighting the plant-based milk revolution, pushing the federal government to take steps to prevent products which are not made of dairy from being labelled “milk”.

Advocacy group Australian Dairy Farmers has written to Agriculture Minister Bridget McKenzie and Chair of the Ministerial Food Forum Richard Colbeck pushing to prevent non-dairy “milks” such as almond or soy milk from labelling their products as milk.

Read more here.